In the practical implementation of projects, the unilateral termination of investment contracts is a sensitive legal issue that entails numerous risks and potential disputes if not carried out in compliance with legal regulations and the agreements between the parties.

I. Current situation relating to the unilateral termination of investment contracts

In recent years, the unilateral termination of investment contracts has become a prominent issue in practice, particularly in large-scale projects with long implementation periods and those affected by various economic and legal factors. In reality, there are many cases where investors or competent State authorities choose to terminate contracts before their expiry due to financial difficulties, policy changes, obstacles in site clearance, or disputes arising during project implementation.

One notable issue is the inconsistent application of grounds for contract termination, resulting in different interpretations and applications of the law among the parties. Many investment contracts do not clearly stipulate the conditions, procedures, and legal consequences of unilateral termination, making it difficult to determine the breaching party and liability for damages when disputes arise.

In addition, abuse of the right to unilaterally terminate contracts has also occurred in certain cases, where one party invokes unjustified reasons to withdraw from a project, causing damage to the other party. Conversely, there are also cases where investors are forced to terminate projects due to planning adjustments or policy changes, while compensation and support mechanisms remain inadequate.

II. Concept of unilateral termination of investment contracts

1. What is the unilateral termination of an investment contract?

In essence, unilateral termination of an investment contract refers to an act whereby one party to (the investor or the competent State authority) independently decides to terminate the performance of the contract before its expiry without requiring the other party’s consent in the contractual relationship, provided that such termination is based on legal grounds or contractual agreements.

2. In which cases does unilateral termination of an investment contract commonly arise?

In practice, unilateral termination of investment contracts commonly arises in the following typical cases:

  • Serious breach of contractual obligations. One party fails to perform or improperly performs its obligations (such as delay in project progress, failure to contribute sufficient capital, violation of technical standards, etc.), thereby affecting the project objectives.
  • Changes in policies, laws, or planning. The project is no longer consistent with new planning or is adversely affected by policy changes, making continued implementation unfeasible. 
  • Force majeure. Natural disasters, epidemics, wars, or events beyond the parties’ control make it impossible for the project to continue.
  • Financial difficulties or changes in investment strategy. The investor no longer has sufficient financial capacity or changes its business orientation, leading to withdrawal from the project.
  • According to contractual agreements. Many investment contracts clearly state circumstances under which one party has the right to unilaterally terminate the contract in order to protect its interests.

It can be seen that unilateral termination of investment contracts is often associated with significant legal, financial, or project implementation changes.

3. Does unilateral termination of an investment contract terminate all rights and obligations of the parties?

Pursuant to Clause 4, Article 428 of the Civil Code 2015, when a contract is unilaterally terminated, the contract shall cease from the time the other party receives the notice of termination. The parties are not required to continue performing their obligations, except for agreements regarding sanctions for breach, compensation for damages, and dispute resolution agreements. A party that has already performed its obligations has the right to request the other party to pay for the performed obligations.

Accordingly, unilateral termination of an investment contract does not terminate all rights and obligations of the parties; rather, it only terminates unperformed obligations while preserving rights and obligations relating to compensation for damages, contractual sanctions, and payment for completed work.

III. Legal regulations relating to the unilateral termination of investment contracts

1. What are the conditions for lawful unilateral termination of an investment contract?

Pursuant to Article 428 of the Civil Code 2015, a party is only entitled to unilaterally terminate an investment contract in the following cases:

  • The other party seriously breaches its contractual obligations;
  • There is a contractual agreement permitting unilateral termination;
  • The law provides for such termination in specific circumstances.

In addition, the terminating party must immediately notify the other party; if failure to notify causes damage, compensation must be made.

Accordingly, unilateral termination of an investment contract is only lawful when there are clear legal grounds and full compliance with the notification obligation prescribed by law.

2. Can contractual sanctions and compensation for damages be applied simultaneously in cases of unilateral termination of investment contracts?

Pursuant to Clause 3, Article 418 of the Civil Code 2015, the parties may agree that the breaching party shall only be subject to contractual sanctions without compensation for damages, or shall be subject to both. 

Where the parties have agreed on contractual sanctions but have not agreed on the simultaneous application of sanctions and compensation for damages, the breaching party shall only be liable for contractual sanctions. 

Accordingly, under the above provisions, the contractual penalties and claims for compensation for damages depend on the agreement between the two parties.

3. Compensation for damages in cases of unlawful unilateral termination of investment contracts

Pursuant to Article 419 of the Civil Code 2015, the amount of compensation for damages shall be determined based on:

  • Actual and direct damages suffered by the injured party;
  • The profit that the injured party would have been entitled to if the contract had been fully performed;
  • Reasonable costs incurred to prevent or mitigate damages.

The party requesting compensation bears the burden of proving the damages and the causal relationship between the breach and the resulting damages.

Accordingly, the amount of compensation is not fixed but depends on the actual damages and the injured party’s ability to prove them.

4. Legal consequences of unlawful unilateral termination of investment contracts

Pursuant to Clause 5, Article 428 of the Civil Code, if unilateral termination of a contract lacks lawful grounds:

  • The terminating party shall be deemed the breaching party;
  • Such party must take civil liability, including compensation for damages and contractual penalties (if agreed);
  • Disputes may arise before courts or arbitration tribunals.

In addition, in the investment sector, unlawful termination may also lead to:

  • Adverse effects on the investor’s reputation and capacity to participate in future projects;
  • Liabilities relating to assets, financial obligations, and project handling.

Therefore, unlawful unilateral termination of an investment contract leads to many unfavorable legal consequences and significant compensation liabilities for the breaching party.

IV. Questions relating to the unilateral termination of investment contracts

1. Is prior notice required before unilaterally terminating an investment contract?

Pursuant to Clause 2, Article 428 of the Civil Code, the party unilaterally terminating the contract must immediately notify the other party of such termination. If failure to notify causes damage, compensation must be made. Such a provision aims to ensure that the other party has time to prepare and minimize arising losses.

Accordingly, notification is a mandatory obligation; if this obligation is violated, the terminating party may be liable for compensation for damages.

2. Does unilateral termination of an investment contract require the consent of the other party?

By the nature of “unilateral” termination, under Article 428 of the Civil Code 2015, one party does not need the other party’s consent to terminate the contract, provided that lawful grounds exist. However, if there are no grounds under the law or the contract, such conduct shall be deemed a breach and legal liability shall arise.

Therefore, the consent of the other party is not required, but lawful grounds must exist for the termination to be legally valid.

3. Is force majeure considered a ground for exemption from liability in cases of unilateral termination of investment contracts?

Pursuant to Articles 351 and 156 of the Civil Code 2015, force majeure constitutes grounds for exemption from civil liability if:

  • It occurs objectively and is unforeseeable;
  • It cannot be remedied despite the application of all necessary measures.

In such cases, the affected party may be exempted from compensation liability for non-performance of obligations, even where such non-performance leads to contract termination.

Accordingly, force majeure may constitute grounds for exemption from liability, but all statutory conditions must be fully proven.

4. Can a party request the return of profits arising after the unilateral termination of an investment contract?

Pursuant to Clause 3, Article 428 of the Civil Code 2015 and the provisions on restitution obligations under the Civil Code 2015, when a contract is terminated:

  • A party that has performed its obligations has the right to request payment for the value already performed;
  • The return of benefits or profits depends on contractual agreements, the extent of each party’s performance, and the determination of fault.

Therefore, profits are not returned in every case; it depends on the agreement and the specific circumstances of each matter.

5. How are disputes relating to the unilateral termination of investment contracts resolved?

Pursuant to Article 317 of the Commercial Law 2005, disputes may be resolved through:

  • Negotiation and mediation;
  • Commercial arbitration (if agreed);
  • Competent courts.

For investment contracts, especially those involving foreign elements, parties often prioritize arbitration to ensure flexibility and confidentiality.

V. Why should you seek legal advice from NPLaw regarding issues of unilateral termination of investment contracts

In the context where disputes relating to unilateral termination of investment contracts are often complex and require in-depth legal knowledge and practical handling experience, seeking professional legal consultation is extremely necessary.

NPLaw, with its team of lawyers who are highly knowledgeable in the fields of investment and contract law, can assist in assessing the legality of termination, developing risk management strategies, and representing clients in dispute resolution before courts or arbitration tribunals. As a result, clients can effectively protect their rights and minimize arising legal damages to the greatest extent possible.

The above information is for reference purposes only. For detailed advice regarding specific cases, please contact NPLaw Firm for immediate consultation.